Go for the real tax thing, use an EA.

Update Jan­u­ary 2013: The US Dis­trict Court for the Dis­trict of Colum­bia handed down a deci­sion in a cross motion for sum­mary judg­ment in the case of Lov­ing v.  IRS, The case is not a ref­er­en­dum on whether paid pre­par­ers should be reg­u­lated, but the court sided with the Lov­ing in say­ing Con­gress never gave the IRS the author­ity to license tax pre­par­ers and the IRS can­not give that author­ity to them­selves.  The court granted an injunc­tion pre­vent­ing the IRS from admin­is­ter­ing its RTRP pro­gram.  The IRS is appeal­ing and also request­ing that the courts sus­pend the injunction. 

Update 2012: The Reg­is­tered Tax Return Pre­parer (RTRP) test­ing has begun, so now there are legit­i­mate tax pre­par­ers with the RTRP des­ig­na­tion.   How­ever, the test­ing for RTRPs only cov­ers Series 1040 and eth­i­cal guide­lines under Cir­cu­lar 230.  Pro­vi­sional Pre­parer Tax Iden­ti­fi­ca­tion Num­ber (PTIN) hold­ers, who have not passed any com­pe­tency exam are still out there, and will con­tinue to be able to pre­pare tax returns until the end of 2013.  Fur­ther­more, the IRS has allowed peo­ple who do not pre­pare series 1040 tax forms, to keep prepar­ing other tax forms so long as they promise not to pre­pare any series 1040 tax forms, obtain a PTIN, and pass the suit­abil­ity check; that means any­one one with a PTIN can still com­plete those other kinds of tax forms. Finally, if a tax pre­parer works at a law firm, a CPA firm, or a firm that is 80% owned by EAs, CPAs and/or lawyers AND a CPA, EA or lawyer is will­ing to sign a tax return the unli­censed tax pre­parer cre­ates, this unli­censed tax return pre­parer can pre­pare your tax form, with­out pass­ing the com­pe­tency exam. The biggest improve­ment in the unscrupu­lous tax pre­parer land­scape is that the IRS can revoke a PTIN.  Any­one who pre­pares your taxes for com­pen­sa­tion is required to sign the tax return and include their PTIN, so be on the look­out for tax pre­pares who don’t. 

The tax prepa­ra­tion land­scape is still pretty scary — the unwary tax­payer can still fall prey to unscrupu­lous tax pre­par­ers fly­ing under the radar.  Remem­ber Enrolled Agents are the tax spe­cial­ists.  Only EAs are required to pass the com­pre­hen­sive Spe­cial Enroll­ment Exam that cov­ers all fed­eral tax­a­tion issues in detail.  If you want a knowl­edge­able pro­fes­sional on the case, the clear choice is still to hire an EA.

The whole tax return land­scape is chang­ing. Big things are hap­pen­ing to pro­tect the aver­age tax­payer from shoddy tax return pre­par­ers.
Until 2011, there was no reg­u­la­tion of unli­censed tax return pre­par­ers. Any­body could wake up in the morn­ing and decide to do
taxes for money. At the same time the gov­ern­ment sub­jected Cer­ti­fied Pub­lic Accoun­tants, Attor­neys, Enrolled Agents, Enrolled Actu­ar­ies, Enrolled Retire­ment Plan Agents, and Apprais­ers were to strict reg­u­la­tion via Cir­cu­lar 230; licensed tax pre­par­ers could face severe penal­ties and lose their licenses for if con­victed of cer­tain kinds of crimes, if they did not file their taxes, if they gave mar­ginal tax returns or gave bad advice. That has changed. Now the IRS will reg­u­late all tax return preparers.

Last year the IRS began the process by requir­ing every­one who wanted to pre­pare tax returns in 2011 to get or renew their Pre­parer Tax Iden­ti­fi­ca­tion Num­ber (PTIN).  The gov­ern­ment required even licensed pro­fes­sion­als such as Cer­ti­fied Pub­lic Accoun­tants, Attor­neys, and Enrolled Agents to renew their PTIN. Licensed pro­fes­sion­als will not have to prove their abil­ity to pre­pare taxes again-they have already demon­strated com­pe­tency.  Fur­ther­more, they are sub­ject to con­tin­u­ing pro­fes­sional edu­ca­tion require­ments, not to men­tion stay­ing cur­rent on their taxes & clear of the law.

Unli­censed tax return pre­par­ers will even­tu­ally have to pass a test to prove their com­pe­tency to pre­pare basic Form 1040s, how­ever, for now, they can still pre­pare tax returns.  If they pass the com­pe­tency exam, the IRS will allow them to pre­pare more com­plex busi­ness returns, even though the IRS is not requir­ing them to demon­strate com­pe­tency there.  No doubt, a few cur­rently unli­censed pre­par­ers, who have renewed their PTINs, will not be able to demon­strate com­pe­tency within the next 3 years, but still pre­pare taxes.

Once the IRS makes the com­pe­tency exam avail­able, the IRS will stop issu­ing PTINs; the tax pre­parer wannabe must past the test before get­ting the PTIN.  Once an unli­censed tax return pre­parer passes the test they will be able to use the des­ig­na­tion Reg­is­tered Tax Return Pre­parer (RTRP), and the IRS will allow them to pre­pare taxes.

Fur­ther­more, the IRS is now going through the PTIN appli­ca­tions look­ing for peo­ple who have felony con­vic­tions and unpaid taxes.  That means for the next cou­ple of years, an indi­vid­ual tax­payer can still wind up pay­ing for slip­shod tax return prepa­ra­tion and advice from an unscrupu­lous pos­si­bly felo­nious tax cheat.  Yikes.

Art & Busi­ness Con­sult­ing LLC employs Enrolled Agents (EA) in its prac­tice.  EAs are fed­er­ally licensed tax prac­ti­tion­ers who have passed strin­gent exams in the area of tax­a­tion.  The fed­eral gov­ern­ment requires EAs to be knowl­edge­able in all areas of tax­a­tion: Per­sonal taxes, busi­ness taxes, cor­po­rate taxes, pay­roll taxes, estate taxes, etc.  as well as rep­re­sent­ing the tax­payer before the Inter­nal Rev­enue Ser­vice (IRS).  As Cir­cu­lar 230 prac­ti­tion­ers, the IRS has also tested EAs on their eth­i­cal respon­si­bil­i­ties and oblig­a­tions per that doc­u­ment and EAs are famil­iar with the con­se­quences of break­ing the rules.  In addi­tion to pass­ing the rig­or­ous Spe­cial Enroll­ment Exam, the IRS requires EAs to take 24 hours per year of Con­tin­u­ing Pro­fes­sional Edu­ca­tion (CPE) includ­ing 2 hours of ethics every year in order to retain their license.  If an EA is a mem­ber of the National Asso­ci­a­tion of Enrolled Agent, they are required to take 30 hours of CPE per year.

EAs have lim­ited priv­i­lege in rep­re­sent­ing the tax­payer before the IRS, when dis­cussing civil (not crim­i­nal) mat­ters that do not con­sti­tute tax return prepa­ra­tion.  In short EAs are tax­a­tion spe­cial­ists, who work to stay cur­rent in the area of tax­a­tion, who can pre­pare any kind of tax form, and can rep­re­sent the tax­payer at all lev­els of the IRS, whether they pre­pared a given tax return or not.

In con­trast, when the Reg­is­tered Tax Return Pre­parer (RTRP) passes their test, which will be a far less dif­fi­cult exam than the Spe­cial Enroll­ment Exam, and gains their des­ig­na­tion, the IRS will only require them to take 15 hours of CPE per year.  RTRPs will have no priv­i­lege with their clients with respect to mat­ters before the IRS because tax return prepa­ra­tion is not a cov­ered priv­i­lege under Cir­cu­lar 230.

Right now, if you see some­body pro­mot­ing them­selves as an RTRP, then they are telling a lie.  There are no RTRPs yet and there will not be any until the IRS fin­ishes set­ting up the test­ing pro­ce­dures for them at Pro­met­ric.  Right now, there are folks run­ning around with a pro­vi­sional Pre­parer Tax Iden­ti­fi­ca­tion Num­ber (PTIN).  Remem­ber IRS allowed peo­ple who pre­vi­ously had PTINs to renew them and will allow any­one to get a PTIN until the com­pe­tency test­ing starts.  Before a per­son with a pro­vi­sional PTIN can claim the RTRP des­ig­na­tion they will have to pass a test; there is no way for them to have passed that test as of this date because the test does not exist.  By the way, any­one using the des­ig­na­tion RTRP is reportable to IRS Return Pre­parer Oversight.

There­fore, if you see any­one cur­rently using the des­ig­na­tion RTRP steer clear.  If you pay some­one to do your taxes, make sure they sign on the tax pre­parer line and give a PTIN.  More­over, if you need help with your taxes or tax advice, as long as it is not crim­i­nal mat­ter, you really should go to the tax spe­cial­ists; hire an Enrolled Agent.  For a crim­i­nal mat­ter, hire a lawyer first; let your attor­ney hire the Enrolled Agent.

Finally when there are RTRPs out there, do not expect EAs to add the des­ig­na­tion to their alpha­bet soup, it is kind of like say­ing Jane Doe PhD, High School Grad­u­ate.  Who would do that?

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help with taxes, or other ser­vices,  Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

(602) 717‑0763